Icahn Sells Lionsgate Stake, Ends Feud

9/05/2011 12:01 AM Eastern

By: By Mike Farrell

Activist investor Carl Icahn ended his
three-year feud with Lionsgate last week, moving to sell
his entire stake in the movie studio and production giant
and drop all outstanding litigation against the company
for about $309 million.

Based in Santa Monica, Calif., and Vancouver, B.C., Lionsgate
is known for its box-office hits, such as the Sawhorror-film franchise, as well as for producing cable stalwarts
such as Mad Men, Weeds and Nurse Jackie.

Icahn, who made his fortune buying stock and debt from
troubled companies, first began acquiring large blocks of
Lionsgate in 2008, eventually growing that stake to about
44.2 million, or 33.2% of outstanding shares. Along the way,
Icahn has shad an ongoing feud with Lionsgate management,
criticizing them for failed box-office ventures, calling
Lionsgate’s 2009 purchase of TV Guide
Network a mistake and attempting to
merge the studio with his interests in rival
Metro-Goldwyn-Mayer.

Lionsgate said Icahn and his son
Brett Icahn have agreed to sell substantially
all of their shares in the studio in
a series of transactions. In addition, the
parties agreed to dismiss all outstanding
litigation between them and release
all claims they may potentially have
against each other.

Under terms of the agreement, Icahn
will sell his shares in three separate
transactions — in the first pair, 11 million
shares, at $7, to an affiliated company
of Lionsgate; and 11 million shares to
affiliates of MHR
Fund Management,
controlled
by former Icahn
protégé and
current Lionsgate director Mark
Rachesky, both to be completed by
Sept. 2. Th e remaining 22.1 million
shares will be sold over the next 35
days to one or more parties designated
by Lionsgate.

Although the price of $7 per share
represents about a 7% discount to Lionsgate’s closing stock
price of $7.52 per share on Aug. 30, analysts believe that the
sale is an efficient way for the studio to remove an overhang
from the stock.

It gives Icahn a reasonable exit path —
the price is about equal to his cost basis
for the shares — and could help finance
his next project, the $10 billion takeover of
household-products giant Clorox.

“As some have noted, my own ‘slate’
is pretty full at the time, and I therefore
determined that it is a good time to exit,”
Icahn said in a statement.

Miller Tabak media analyst David
Joyce called the deal an efficient exit
for Icahn and a way for institutional investors
to take block positions in the
company without disrupting the share
price.

“With the Icahn issues behind it, investors
should refocus on the fundamentals,”
Joyce wrote in a research
note. Lionsgate management also
seemed relieved to be able to remove the Icahn albatross
from its neck, in a way that won’t dilute the stock.

“We believe that this accretive and antidilutive transaction
is in the best interest of all Lionsgate shareholders, and
it allows the company to continue to focus on the execution
of its long-term business plan,” Lionsgate co-chairman and
CEO Jon Feltheimer said in a statement.

EXITING THE LIONS’ DEN

Carl Icahn has agreed to sell his stake in movie studio and production house Lionsgate in a three-pronged deal:

Icahn agrees to sell 11,040,493 shares of Lionsgate common stock to a Lionsgate company for $7 per share.

Proceeds: $77,283,451

One or more affiliates of MHR Fund Management LLC agrees to buy 11,040,493 shares of Lionsgate
stock from Icahn for $7 per share.Proceeds: $77,283,451

Over the next 35 business days, Lionsgate has the right to designate one or more parties to purchase
up to 22,080,985 shares of Lionsgate stock from Icahn at $7 each. Proceeds: $154,566,895